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PEER COMPANIES

Big stocks do not always guarantee robust return on Dalal Street. There are names like Unitech, Reliance Communications (RCom), MTNL and Suzlon Energy that investors bought in their good times but ended up eroding almost everything in last 10 years.

Data shows an investment of Rs 1,00,000 in Unitech became less than Rs 2,500 today, whereas the same investment in RCom would have become less than Rs 5,500.

Here’s the lesson. Don’t buy a stock and forget it. There is always a need to review your portfolio from time to time. Things may look better for a company on the books, but can turn bitter on the ground, due to regulatory changes, mismanagement, etc.

The above-mentioned companies are not the only ones that destroyed investor wealth over this period. A couple of stocks that traded in four digits in 2008, like Aban Offshore, 63 Moons Tech and MMTC, have wiped out over 95 per cent of investment in last 10 years.

Aban Offshore dipped from Rs 3,753 on March 5, 2008 to Rs 167 on March 5, 2018; 63 Moons Tech (erstwhile FTIL) and MMTC slipped from Rs 1,926 and Rs 1,022 to Rs 91 and Rs 50, respectively, during this period.

“Buying a good stock in itself is not sufficient to generate long-term wealth from the stock market. Monitoring stocks in the portfolio is equally important. Once an investment is made, it is advised that investors keep on periodically checking whether that company still fits into the standards of operational and managerial performance. A buy-and-hold strategy with blind faith is not advisable for stock investors,” says Vijay Malik, a value investor.

Jaiprakash Associates, Amtek Auto, MTNL, DLF and Reliance Power are other well-known companies on this list that eroded up to 90 per cent of investment amount in last 10 years.

Investors poured their money in Unitech, looking at the company’s huge land bank, whereas Reliance Communication was going strong and had the backing of the Anil Ambani Group. Over time, the scenario changed for both of these businesses.

The Supreme Court recently asked Unitech to file a list of its unencumbered properties, including its subsidiaries in both India and abroad, as it once again did not give any verdict on the bail plea of Managing Director Sanjay Chandra. The company is struggling to refund home buyers’ money.

For Reliance Communications, total debt soared to over Rs 45,000 crore as of March 31, 2017 from Rs 17,400 crore on March 31, 2007. Telecom firm MTNL saw its total debt soar from just Rs 14 crore to Rs 15,201 crore during the same period.

Delhi-based investor Ashish Chugh believes it is extremely important to review one’s portfolio on a regular basis. It’s akin to going for a regular health checkup.

Reviewing a portfolio does not mean you have to churn your investments frequently.

“We are living in a dynamic world - disruptions, business cycles have been there and will continue in the future. A buy-and-hold strategy does not mean you purchase anything and hold it just for the sake of holding. You have to look at companies you are holding and evaluate the potential benefits or threats from the changing micro and macro-economic factors,” Chugh added.

Market veterans say reviewing one’s portfolio periodically can help investors evaluate whether their thesis or assumption with which they bought the stock still holds good. Even while reviewing the portfolio, the focus should be on the company, its performance and the dynamics of business rather than just stock performance.

On the other hand, changing business dynamics turned many penny stocks of 2008 into multibaggers in 10 years. For instance, shares of Symphony, Avanti Feeds, Relaxo Footwear, PI Industries and Caplin Point Lab have surged up to 45,000 per cent between March 5, 2008 and March 5, 2018.

Symphony surged 45,362 per cent to Rs 1,773 from just Rs 3.90 during the same period, whereas Avanti Feeds, Caplin Point, Relaxo Footwear and PI Industries rallied 37,925 per cent, 39,760 per cent, 13,403 per cent and 12,917 per cent. All of these stocks were penny in 2008.

Kolkata-based value investor Abhishek Basumallick told ETMarkets.com that for every company held in a portfolio, there needs to be a thesis; a story around why one has bought it and what is the expected path the business is likely to follow.

That thesis needs to be revalidated every quarter when management provides some commentary on its performance and future prospects.

“Regular revalidation is a must to ensure that an investor keeps following the unfolding story, even if the portfolio is filled with ‘blue-chip’ companies. A good practice is to maintain a document and keep updating it with views and changes after every result. It is important to understand the implications of the current result on the original investment thesis. Regular tracking does not necessarily mean one needs to take a buy-or-sell call,” said Basumallick.